The wine industry is one of Australia's global success stories. Annual exports surpass $2 billion and the industry's large corporate players have made solid inroads on the world stage from home bases in Australia.

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But Australia's global market share in wine is still small at close to 5 per cent. Rationalisation of the fragmented sector is accelerating as the big players face some tough decisions on future expansion.

Foster's Group is taking a different approach to its two largest listed rivals, Southcorp and BRL Hardy.

It splashed out $2.9 billion in August 2000 to buy California's Beringer Wine Estates to gain some geographic diversity and to provide a natural hedge against the US dollar.

Southcorp is pursuing an export strategy using its local brands of Penfolds, Lindemans and Rosemount.

BRL Hardy is basing its strategy mainly on exports, but in mid-2001 established a foothold in the US through a joint venture called Pacific Wine Partners with US alcoholic drinks giant Constellation Brands.

PWP has winery assets in California and the fast-growing Blackstone brand, plus the distribution rights for the bulk of BRL Hardy's Australian brands, such as Banrock Station and Nottage Hill.

Australia's other big wine player, Orlando Wyndham, is owned by French drinks giant Pernod Ricard. It has had huge success globally with its Jacob's Creek brand, which sells more than 5.3 million cases a year from its operational base in South Australia's Barossa Valley.

Foster's chief executive Ted Kunkel says the company is an example of how it is possible to be a global player from Australia.

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He says it is inevitable that large companies in Australia will have to seek growth from offshore because of the limiting factor of Australia's population of 19 million, in sharp contrast to 278 million in the United States and 60 million in the United Kingdom.

"As such there is a limit to how much growth can be achieved within the confines of the Australian economy, particularly for well established products," he says.

Kunkel says that to be successful in the global economy, Australian companies need to attract support from global capital markets to make sure they have access to competitive funding arrangements and to help them realise growth ambitions.

"If you are unable to attract capital from global fund managers, then the cost of doing business is higher than that of global companies," he says.

BRL Hardy managing director Stephen Millar says retaining corporate head offices in Australia is integral to the health of the broader economy because much of the legal, accounting and other services work associated with a head office takes place where it is based.

"There is no doubt that a lot of these people sit where the decisions are made," Millar says. "If the head office goes offshore, you very much lose that."

Millar says the wine industry is one of the very few in which Australia can be called a world leader - the local wine-making skill base is at the forefront on a global stage.

"Australia can take a world leading position and there's few areas where that can happen."

BRL Hardy in early 2001 made a bold push for expansion in the US by becoming one of the main bidders for Californian wine giant Kendall-Jackson. But private owner Jess Jackson pulled the asset off the market at the last minute in May 2001, after bids from BRL Hardy and other rivals fell short of the estimated asking price of $US2 billion ($3.5 billion).

Millar says it is imperative that Australian wine companies seize growth opportunities, but these do not necessarily have to be built around large acquisition. Strong organic growth is equally important.

While offshore predators are interested in large local players, it is not the case that if Australian players fail to make large offshore acquisitions, they will be taken over themselves, Millar says.

However, that scenario will increasingly emerge if local players do not generate strong growth and profits from their businesses, he adds.

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